3. Suppose that the total monthly demand for golf services is given by

Q = 20 – P

The marginal cost to the firm of each golfer is $1. If this demand function is based on the individual demands of 10 golfers, what is the optimal two part pricing strategy for this golf club? How much profit will the firm earn? When should this firm adopt this particular pricing strategy?

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  1. The optimal per-unit charge = Marginal cost when P=20-q and MC=1
    equating P=MC
    thus 19rounds of golf will be played each month.
    The consumer surplus received by 10 golfers=1/2*(20-1)*19=$180.5
    consumer surplus received by each golfer=180.5/10=$18.05
    Thus for optimal two part strategy, each golfer should be charged a price of $18.05 plus a fee of $1.
    The total profit of the firm=$180.5-fixed cost of the firm.
    This strategy is used to extract maximum profits.

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